Today's Mental Monday is based on a article by Adrienne Toghraie, from the November 1996 issue of Technical Analysis of Stocks & Commodities magazine, titled, Transforming trader self-talk.

In the last episode of Basket Case Bob, he met Smooth Sally and they got along famously. Since that time he settled down with her and had a son. In the early days of his life, Basket Case Bob was a positive individual, with a smile on his face and love in his heart. Brought up in an optimistic family with money, he always had a sunny disposition, facing each day with renewed optimism, a happy-go-lucky guy.

But one rainy afternoon, he asked his wife to go on an errand. During that errand, she got into a car accident which took both her life and that of their son. Since that time, he has been, well, a basket case.

He blamed himself, thinking that if he hadn't asked her to go on the errand, they would still be alive. Such negative thoughts affected not only his behavior but his trading results as well.

Bob used to earn big bucks and was a skilled trader, but now he can't find a profitable trade. On one trade, he cut his losses and sold. Three minutes later, the stock started the long uptrend that he had been waiting for all morning. Two losses later, he decided to hold on as a stock declined, believing that it was also going to turn up. The general market was moving higher, he reasoned, why not this stock? He held on longer than he should and crashed along with the airline stock, selling near the low for the day.

Toghraie wrote,

Self-talk controls your trading destiny. Self-talk is that inner voice that interprets what is happening and how you feel about it. Your self-talk can be positive, optimistic and encouraging so that it gives you the energy and confidence to stay the course in the face of the most overwhelming odds. Unfortunately, however, most of the traders with whom I have worked, regardless of their level of success, engage in negative self-talk, which results in their failing to achieve their ultimate potential.

Negative self-talk is a bad habit, like picking your nose in public. If you practice it long enough, it becomes familiar, comfortable, and costly. You listen to an inner voice that warns, you are going to lose money on this trade, and you do. Or the stock is going to turn higher one of these years. It will, the day after you sell it.


She researched patterns of behaviors, attitudes, and past experiences with trading losses. A pattern has emerged from this study that correlated market losses with negative self-talk. The correlation between having difficulty following rules, negative self-talk and losses is also very clear.

She says that the habit of negative self-talk can begin with a traumatic event like the deaths of Basket Case Bob's wife and son, with a series of losing trades, or even a single traumatic trade.

One trader I know lost no more than $5,000 in a single trade during his life. Then he moved into the currencies markets and was doing well. That confidence along with increased leverage allowed him to place a $1,300,000 bet on a currency play, one that went bad. He lost $31,000 on that trade. The resulting depression caused by that losing trade lasted more than 6 months, making life difficult for him and his family.

Unfortunately, his story is not unique. People think they can handle the leverage and wipe themselves out in one trade. How many times have you heard that from traders? And no, I haven't wiped myself out, but I have been stung many times by dead cat bounces.The stock in which I made the most money (almost 5,000%), dead cat bounced no less than eight times in eight years, taking me down between 20% and 50% each time.

When you face a losing trade or series of losing trades, do you repeat the same excuses? Toghraie writes, Traders who cannot pull the trigger or exit too soon have their own special monologue that effectively sabotages their trading results. Their self-talk is all about their fears, their losses and their uncertainties.

Fueling Self-Talk

What powers negative self-talk? Basket Base Bob holds up four fingers and says, There are three things....

  1. Coloring experiences black. During this year, I have had a fear of getting into a bicycle accident. I routinely hit 30 mph on my bicycle, but did the most damage at less than 10 mph. Imagine what I would look like hitting a parked car at 30 or licking the road with my face? Having three accidents since I have been riding hasn't helped, but the negative self-talk has taken the joy out of exercising by riding a bicycle.

Trading can be the same way, like my friend that lost $31 grand. Traumatic losses in the past color your perception of the future.

  1. Stress and poor habits. Trading for a living is stressful, so you need to find a way to release that stress. Some turn to pills. Some turn to alcohol. Others begin stuffing themselves with junk food or comfort food. Are you feeling stressed? The answer may lie in the number of times you reach for a salty snack. The higher the number, the more stress you may be under. Think about it the next time you reach for those potato chips.

Instead of exercising, do you form bad habits and don't exercise at all? How about meditation as a release for stress? Who wants to exercise and take care of themselves when they are depressed?

  1. Other Downers. If you live with glass half-empty (pessimistic) people or come in contact with them regularly, they can be an emotional drain. They suck away your vibrant energy, leaving you feeling as if no trade will be a winner.

After losing his wife and son, Basket Case Bob sought out others that also experienced such loss. While it might sound like a good idea, it was like being in the company of losers. No one was happy and they continued to be miserable, prolonging their suffering. Have you ever heard the phrase misery loves company?

In the next episode of Basket Case Bob, we'll discover the components of negative self talk and then learn how to eliminate it from our trading.